Buyout Rumblings Help GNC Holdings Inc (GNC) Flex Its Muscle

Could GNC Holdings Inc (GNC) be a takeover target?

Oct 19, 2016 at 10:21 AM
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GNC Holdings Inc (NYSE:GNC) is flexing some technical muscle this morning, up 7.3% at $20.81. Giving the stock a shot in the arm is a Wall Street Journal report, claiming the supplements retailer recently met with several potential Chinese buyers (subscription required). Meanwhile, today's upside gap should come as a welcome development for shareholders and bullish options traders, who have watched the stock struggle for some time.

Specifically, GNC has lost nearly half of its value on a year-over-year basis. In fact, the stock has suffered a number of huge single-day tumbles over the last 12 months -- most recently on July 28, when the shares shed one-quarter of their value on a poorly received earnings report. It hasn't been pretty over the past three months, either, as GNC has underperformed the broader S&P 500 Index (SPX) by about 29 percentage points.

Having said that, options traders have been placing bullish bets at an accelerated rate. The stock's call/put volume ratio over the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a top-heavy 3.57. What's more, this ratio ranks in the top one-third of all comparable readings from the previous 12 months.

Underscoring the call-skew, GNC's Schaeffer's put/call open interest ratio (SOIR) is 0.47, with calls doubling puts among options expiring in the next three months. Today, in fact, call options are being exchanged at 23 times the normal intraday pace, and outstrip puts by a 16-to-1 margin.

That's not to say everyone's sold on GNC Holdings Inc (NYSE:GNC). For example, all eight analysts tracking the nutritional supplements stock consider it a tepid "hold." Plus, a considerable 7.4% of GNC's float is sold short, which is just a chip-shot from the roughly three-year-high levels touched in mid-August. In fact, it's possible some of these short sellers have been scooping up calls to protect themselves against an unforeseen breakout -- not unlike today's.

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